Citigroup weighs options as shares in banking giant plunge

Citigroup, which a matter of months ago was the biggest bank in the US, is
reported to be considering selling parts of its business or merging with
another company as the bank scrambles to shore up investors' confidence.

The bank's chief executive Vikram Pandit and British chairman Sir Win Bischoff are due to meet later today with the rest of the bank's board in New York in a bid to discuss options for the bank, the Wall Street Journal reported today.

The meeting comes after shares in Citi tumbled 26pc yesterday as Wall Street fretted about the financial health of the banking giant. Citi, built by former chief executive by Sandy Weill into a conglomerate whose operations span asset management, mergers and acqusitions as well as retail banking, has been one of the hardest hit by the implosion of the US sub-prime mortgage market.

Citi insists that it has a "very strong capital and liquidity position", but shares in the bank have continued to plumb new lows. Trading at $54 a share two years ago, the shares closed yesterday in New York at $4.71. Mr Pandit, who was appointed last year to help steer the company through the crisis, is dramatically cutting costs and last week unveiled plans to axe 52,000 jobs across the world.

Citi employs 11,000 people at its operations in the UK, where it is headquartered in Canary Wharf. As many as 1,500 of the 52,000 jobs are already going in London. The difficulties faced by Citi, which has racked up losses of $20bn in the past 12 months, underlie the intense strains still facing the battered banking sector.

"Investors right now aren't convinced that we're done seeing dead bodies on the Citigroup balance sheet," William Fitzpatrick, an analyst at Optique Capital Management in the US, told Bloomberg. "That's what the sell-off is, concern over more and more losses over the next couple of quarters."

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The precipitous falls in Citi's shares come despite Saudi Prince Alwaleed Bin Talal yesterday announcing a plan to increase his stake to 5pc from under 4pc. The billionaire investor, a long-term shareholders, said that Citi was "taking all the necessary steps to position the company to withstand the challenges facing the banking industry and the global economy".

Citi's woes are mirrored across the beleaguered banking sector, which according to a new survey will lose 350,000 jobs by the middle of 2009. The sector has already shed 170,000 jobs since the credit crisis first erupted last year.

The bank's shares have come under such pressure that it emerged last night that the bank's management have begun lobbying the US Securities and Exchange Commission to reinstate the short-selling ban which was in place over the summer to stop traders shorting the shares of about several dozen financial institutions. In addition, Citigroup is also looking for the return of the up-tick ban, which expired in July 2007, which required investors to wait until a company's shares rose before they could short it.

The reintroduction of the these two measures would effectively place a floor under the bank's shares.

Canaccord Capital analyst Sari Karim believes the bank's problem is that it did not raise enough money early on in the credit crisis, in spite of several rounds of external fundraising, and now it is "in trouble because it doesn't have sufficient cash... As a company, [Citigroup] can't go bankrupt because it's too big. It will get bailed out."

Another negative sign of the company's financial health – the cost of insuring its debt – rose again on Thursday. Guaranteeing $10m of its debt now costs $395,000 a year, up from $357,000 on Wednesday.

A Citigroup spokesman said: "Citi has a very strong capital and liquidity position and a unique global franchise. We are focused on executing our strategy, including our targeted expense and legacy asset reductions, and we believe the benefits will be seen over time."